Saturday, September 20, 2008

Terrible Swift Sword


Hang on to your hats, or your wallets, or your purses, or your ATM cards, or your credit cards, or your houses, or your dogs, or your marbles, or your whatevers, because this is pure crazy time!

There's a lot of talk now about how the latest Wall Street Blitz is as wild an economic shock to the system as anything since the beginning of The Great Depression in 1929. I guess we'll see soon enough.

Let's hope there's not a run on the banks, like yesterday's run on gas stations in Nashville thanks to self-fulfilling rumor and widespread panic.

To be prepared for the next round of shocks, I checked out my bank's status and discovered it's eight billion bucks in the hole thanks to the mortgage (etc.) crises. And, digging further, I found out that it's owned down the line by the Royal Bank of Scotland.

On the other hand, it's protected by the Depression era Federal Deposit Insurance Corporation (FDIC), formed thanks to FDR and Democraticc Congressional allies via The Glass-Steagall Act of 1933. (As is my new credit union, one that operates more fairly for its members than almost any commercial bank in the land.)


Unfortunately, some of the FDR delivered regulations have been recklessly rolled back thanks to the Republican crafted Gramm-Leach-Bliley Act (GLBA) of 1999. Phil Gramm being one of John "Mad Jack" McCain's closest advisors (unofficially now, having had to resign his formal post as McCain's top advisor on the economy following these remarks on July 9, 2008: "We have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline." -- as quoted by the conservative Washington Times).

Hopefully, at least a plurality of registered US voters will know all that come election day, and act accordingly.

Today's Rune: Flow.

9 comments:

Anonymous said...

Americans need to be told a more fundamental truth: This crisis is the result of a willful and systematic failure by the government to regulate and monitor the activities of bankers, lenders, hedge funds, insurers and other market players. All were playing high-stakes poker with the financial system, but without adequate transparency, oversight or supervision.

The regulatory failure, in turn, was grounded in the Bush administration’s magical belief that the market, with its invisible hand, works best when it is left alone to self regulate and self correct. The country is now paying the price for that delusion.

NYT editorial, 9/19/08

Charles Gramlich said...

I'm thinking a lot of this got started with Reaganomics. Or am I wrong?

the walking man said...

The "modern" first base of deregulation of the market actually had its baby steps in the Carter administration. BUT Reagan was the administration during which massive deregulation started.

To me, historically this all began when Teddy Roosevelt broke up the monopoly's which ruled the national economic. This was back in 1902-1908. Hence his "Trust Buster" title.

Since then mega corporations have emerged that have willfully used ever economic manipulation tool they could devise to regain that control. To one degree or another, by being reactive or by willful collusion, every administration has worked to reverse the federal control of the economy.

w, in 2004 put the final nail in the coffin of regulation. That year the FCC decided to restrict access to markets of start ups that wanted to compete with the baby Bells. Leaving the field open for the larger phone companies to operate how ever and in whatever means they wanted.

Just this last week the Democratic governor of Michigan signed legislation that guarantees 90% of the market to the two largest suppliers of electricity. Despite an immediate and increasing rate hike for consumers. Business rates will come down at the same time.

This melting of Wall Street and the subsequent use of taxpayer dollars to shore it up, could result in a highly inflationary economy.

But that is not the worst of it...the worst of it is that it immediately raises the single year deficit to near a trillion bucks. Adding to the debt accumulated so far and the American taxpayer collectively is on the hook for 12 trillion and individually for roughly 10-15 thousand dollars.

This bailout reaches well beyond the shores of North America. Without it T bills, the major way of financing the debt were becoming poor investment options for foreign governments. If that market collapsed the worlds economy which had been feeding off of the American 3 trillion dollar per year plus economy, was shaking, getting ready to rumble by cashing in the T bills held which is the alternative that, w and his band of pirates (no disrespect intended to pirates) are talking about when they say "by not authorizing this bail out the alternative would be much worse."

A wholesale cashing in of T bills before their maturity date would in essence collapse the federal economic because not only would there not be purchasers for future notes but the government would have to pay an early retirement of debt or default on it. Bankruptcy is the alternative. America has a substantial gold reserve thanks to FDR. (1933 gold for paper)

This reserve would be wiped out and the country, economically would be a wasteland. In trying to understand this model look to the Soviet after it fell. It went bankrupt, its military went unfunded to a large degree. Its already sad infrastructure went unfunded and a high level of unemployment, hunger and, poverty developed that was unprecedented in its former lumbering economy.

Now the leaner Russian economy is based on mineral and oil wealth. It has taken two decades but it is looking good for them at the moment, even after their stock market collapsed a few years ago.

Our economy has been credit based for about 4 decades now and that is why it is so shaky and so heavily effected by the machinations of the business culture.

Sidney said...

I think you're right, Charles. A great thing to look at on all this is this week's "Bill Moyer's Journal" which is online at http://www.pbs.org/moyers/journal/index-flash.html

It features an interview with Kevin Phillips, author of a book called "Bad Money" and an essay on the new Yankee stadium and the disparity between the seats for the common man and the $$$$$ luxury boxes for corporations:

"...while the Yankees reportedly have promised that half of what's left will cost $45 apiece or less, those seats that used to cost $250, right behind the dugout, will cost you $850. And if you want to be near home plate, you'll have to cough up $2,500...per game.

Meanwhile, there will be more luxury suites and party rooms where the fat cats gather, safely removed from the sweaty masses. Corporations and wealthy individuals will be able to rent the luxury suites for anywhere from $600,000 to $850,000 tax deductible dollars a year, assuming they haven't filed for bankruptcy this week."

What is America's game these days?

Erik Donald France said...

Thanks, all, for the comments!

We'll be seeing more disparity in motion this week, I'm guessing.

(Leonard Cohen's "Everybody Knows" as soundtrack . . .)

MacGuffin said...

Gramm must be one of the most hated people in the country right now. If he isn't, he damn well should be. F-ing Ayn Rand devotees.

Bubs said...

We don't build or create anything as a nation any more. We import more than we export, spend more than we make, borrow more than we save. Largest debtor nation. We create wealth in this nation by moving money around, not goods or real services.

Yeah, we'll all look like Okies soon enough.

Lana Gramlich said...

Our car insurance is through AIG, so when the media mouthpieces promptly tried to assure us that our car insurance is safe, rest assured that I don't believe it for a second.
I also love the way the big banks have been nickel & diming the American people to death for years now & when THEY blow it, WE have to bail them out. Can I stop paying for my car insurance now, since I'm paying for AIG's greed & ineptitude, anyway?

t said...

finance seemed like the smart business to be in. more money in it than in actually making stuff. a lot of air, though. guess that's why they call them bubbles. the smart ones know all along it's air. but air that feeds the family and maybe merits a trust fund someday they dream.

credit unions are cool.